Back tracking on carbon pricing will damage Australia

Lord Nicholas Stern who headed the Review on the Economics of Climate Change, published in 2006, discusses the Australian government's intention to put an end to the carbon pricing and says it will damage not only Australia but also the rest of the world.

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TONY JONES, PRESENTER: We were joined just a short time ago from London by Lord Nicholas Stern who headed the review on the economics of climate change published in 2006.

He was also the principal adviser to the British Government on the economics of climate change and development from 2005 through to 2007.

Lord Stern is now chairman of the Grantham research institute at the London School of Economics. Nicholas Stern, thanks for joining us.

NICHOLAS STERN, LORD, LONDON SCHOOL OF ECONOMICS: Nice to talk to you again, Tony.

TONY JONES: Since we last interviewed you, there's been a change of Government in Australia. The new Government, led by Tony Abbott, is reversing much of the previous Government's climate policy, especially the carbon tax. Do you think Australia's decision to scrap a price on carbon and to step away from the global carbon markets will actually be something that other countries might want to follow?

NICHOLAS STERN: I think other countries will take note of it. If they're sensible I think they won't want to follow it. Many countries round the world are embarking on carbon pricing, seven provinces in China, from where I've just returned.

South Korea, California and so on, and it's a natural pro-market thing to do because what you're doing is correcting for a market failure. People are dumping pollution essentially into the atmosphere on others and they're doing it for free so a carbon price is just to stop subsidising that kind of pollution, it makes a lot of sense.

And Australia's commitment and Australia's perceived commitment as a rich country which has got very high emissions, carbon emissions per capita, Australia is seen as a country that really matters and of course you're hosting the G20 as well so other people are really looking at Australia and they worry about the direction.

TONY JONES: So do you regard it as a retrograde step, possibly even a damaging one from your point of view?

NICHOLAS STERN: I think it's damaging for the world and I think over the medium term it's damaging for Australia because Australia's a very well respected country, expected to take a lead on the issues that count. Dynamic, forward-looking and I think Australia would be a great leader in alternative technologies.

TONY JONES: The Canadian Prime Minister, Stephen Harper, has spoken of his admiration for the Prime Minister here, Tony Abbott, for scrapping the carbon tax. He said Canada will never have a price on carbon under a Government he leads either. Together, they're quite an influential bloc, if you think about it. Is it possible that those kind of views might start influencing others to step away from this idea of carbon pricing?

NICHOLAS STERN: I think it's unlikely. I mean, those are the two countries that have stepped back. Other countries have been moving forward. United States committed in Copenhagen and Cancun in 2009 and 2010 those international climate conferences, to cut its emissions 2005 to 2020 by 17 per cent. They look to be on track to do that.

The European Union's commitment is on track for 2020 - 1990 to 2020. They had a 20 per cent reduction target.

China had a strong emissions unit of output target which it set out in Copenhagen and Cancun and they look as if they're going to meet it too and China is introducing carbon pricing in seven provinces and moving to peak its consumption of oil... sorry coal I should say, in the next 10 years or so.

So you've got strong movement in big parts of the world and I think actually Canada and Australia are the odd countries out and they look like that.

TONY JONES: I'll come to China in more detail in a minute but despite axing the carbon tax, the Abbott Government still has the same short-term emissions reduction target of five per cent. They say they'll comfortably achieve that by using what they call Direct Action policies. Do you accept there could be more cost-effective ways of reducing emissions than putting a price on carbon?

NICHOLAS STERN: A price on carbon is the one that appeals to the market, that gets the markets to work. It fixes the market failure. It is the efficient way to do things.

There are other ways of doing things but basically, each country should be seeking to do two things - having a strong emissions reductions target and five per cent 2000 to 2020 is not strong by any stretch of the imagination and certainly by comparison to elsewhere. And this kind of back tracking on policy and voluntary ways of - so-called voluntary ways of doing things doesn't look credible.

There are two key tests, strength of reductions and credibility of policy, and it looks to me at the moment as if Australia fails both of those and it is a great pity because Australia has tremendous potential in the creativity of its people and its technology and I think it could play a great lead on this and benefit in the process and be a leader in this dynamic transition to a new way of doing things, investing in renewables and nuclear and whichever way that Australia chooses but there are real options there including carbon capture and storage.

TONY JONES: How do you see the economics of this? Can direct action policies be used, the sort of direct action policies that Professor Garnaut in Australia has analysed in this country, can they be used over the long-term to make big emissions reductions?

NICHOLAS STERN: I don't know the details of Australia's alternatives in that way, Tony, so it wouldn't be wise of me to comment on them in detail but what I can say is that a five per cent 2000 to 2020 is a weak target and back-tracking on something that looked as if it was pretty strong and looking for something voluntary doesn't seem to me to be very credible.

Messing about with policy, switching this way and that way, is not the way to foster investment. Government-induced policy risk, monkeying around with policies, changing this way and that way doesn't help with investment. It pushes up the price of capital, people aren't clear where things are going and it makes any change more expensive.

TONY JONES: As you mentioned earlier, you've just returned from a trip to China, the world's largest emitter of greenhouse gases. How can we have any hope they will actually really reduce emissions when they've just approved the construction of 100 million tons of new coal production?

NICHOLAS STERN: What China is doing is growing rapidly and trying to reduce the fraction of coal in its energy portfolio and it's succeeding in doing that.

TONY JONES: Sorry, can I interrupt you there. Do you know what it is at the moment? I found it hard to actually find details of this. What is the percentage of power produced by coal?

NICHOLAS STERN: I think it's around - you'll have to check this Tony but I think it's just below 60 per cent coming down from considerably above 60 per cent.

Don't hold me on those numbers. All I can tell you is that it's coming down pretty rapidly in China as a result of direct policy and notwithstanding a likely doubling of the economy in 10 years, that they aim, during that period, to find a peak in coal and then bring it on down thereafter.

TONY JONES: The interesting thing is finding the peak in coal is happening at the moment and the peak may be very high because the extra production is six times the previous year, it is going up very fast. They aim to put, apparently, 850 million tonnes of new coal production into operation by 2015 at which rate won't any clean-energy benefits be simply wiped out by this new coal production?

NICHOLAS STERN: The real question there is consumption and China is importing coal so by increasing production they're looking to reduce their coal inputs. The key figure to look at is consumption and it's consumption they're seeking to peak in the next 10 years or so.

TONY JONES: The Chinese Greenpeace spokesman Deng Peng who's based in Beijing says even though they've shut down some of their old and dirty coal-fired power stations, they're hugely expanding coal production in north-west China and building coal bases on, according to him, not seen anywhere else in the world, with vast open-cut coal mines and power plants and coal chemical plants all linked together, massive expansion, so I'm just wondering if we're seeing one thing with coal and hearing another thing - a sort of propaganda, if you like, about how much renewable energy is changing the equation?

NICHOLAS STERN: I don't think that's the right way to look at it. As I said before, what you have to look at is consumption, how much coal are they burning and planning to burn? That is going to go on rising for around 10 years or so, the consumption of coal. They're looking to produce more of the coal inside China and that means a reduction of their imports.

At the moment they're importing so I think we should see the extra production in China as an attempt to cut dependence on outside, including of course, imports from Australia. The key thing to look at in terms of their emissions is their consumption and it's their consumption they're intending to peak and I've talked in detail to the people working on that and I believe that that intention, ambition to peak the consumption of coal in the next 10 years is credible but it will be going up for that time and that is a problem but it takes a while to turn round a country as big as China but their intention is pretty clear.

They don't like depending on coal imports. The air in Beijing and other cities in large measure as a result of all that burning of coal, is pretty toxic and that is something they worry about very understandably.

TONY JONES: When I first spoke to you in 2007 about the coal-fired dilemma in China, the coal-fired power dilemma, you said the answer ultimately would be to put a massive effort into carbon capture and storage, in other words putting CO2 underground, storing it underground. Is that actually happening anywhere in China at this point?

NICHOLAS STERN: There's interest, growing interest, but it's not gone nearly as fast as many of us hoped six or seven years ago. I think one has to focus on phasing out of coal and thinking of the alternatives to coal and in China they're thinking very strongly of expanding nuclear, maybe 150 nuclear power stations, one gigawatt in time in the next 15 years or so, big expansion of renewables, big expansion of hydro, and gradually that's the way they'll turn it round.

If they do find carbon capture and storage then good luck to them. I would hope they could and it would work but it's going quite slowly.

TONY JONES: Yes it certainly is but renewables, although they've got a massive renewable program, even when you combine the renewables with the hydro, it's still only currently 10 per cent as far as I can see of the energy that they burn at the moment so how quickly can they ramp that up?

NICHOLAS STERN: I think that they can ramp up the renewables, the hydro and the nuclear pretty quickly but pretty quickly, you know, you have to talk horizons of 10, 20 years. It does take time to turn around but as I said, they plan to peak coal in around 10 years. That target's not confirmed but my guess is that in the 13th 5-year plan to be published towards the end of next year, that's the kind of target they'll have. That's the measure of how rapidly they're trying to turn it round but you can't do that just in one or two years. It needs a sustained program over 20 years or so.

TONY JONES: Finally...

NICHOLAS STERN: They're absolutely committed on this, Tony. Coal consumption will rise for the next 10 years or so but after that it's likely to turn down. During that 10 years, coal production is likely to go up but that will mean reduction in imports not a rise in consumption.

TONY JONES: They have not committed to an overall national emissions reduction target of the type that Australia is trying to do and other countries are trying to do. Is there a chance they'll move from that and have a proper national emissions reduction target?

NICHOLAS STERN: Their emissions reductions target is emissions per unit of output and it was a pretty strong one, 40 to 45 per cent from 2005 to 2020 and they're likely to meet that. My hope, and I think it's quite likely it will turn out this way, is that when they do the 13th 5-year plan, which is the second half of this decade, that that will contain a reduction target in terms of absolute amounts rather than emissions per unit of output.

My feeling is that's coming. That's the kind of discussion that's taking place. We won't know the outcome of that discussion until the 13th 5-year plan comes out towards the ends of next year but I believe that's the direction they're going in.

They're taking this enormously seriously. They understand that, like Australia, they are very vulnerable to climate change. You've seen the vulnerability to climate change emerging in Australia just on 0.8 degrees centigrade that we see now.

Heatwaves that were supposed to be once every many decades occurring a few times in a few years. That's the kind of change that Australia's seeing, China's very worried about water, their water largely comes off the Himalayas and as the snow and ice starts to melt the, their water supply's become much more unreliable. They have lots of people on the coast, they're vulnerable to sea level rise and storm surges.

Like Australia, China is very vulnerable and China sees that vulnerability, it sees it's a big part of the story, it thinks it's got a good chance of winning this green race, this new dynamic transition to low-carbon economy. They're very serious about this, Tony.

TONY JONES: Finally, as scientists meet in Japan to thrash out the final wording on the IPCC's next assessment report on the impact of climate change, British economist Professor Richard Toll who was one of the lead authors, has asked for his name to be taken off the document, claiming it's alarmist and has been changed from talking, as he says, about manageable risk to the four horsemen of the apocalypse. How much damage will his departure do to the credibility of the final report?

NICHOLAS STERN: Not much. He's always been somebody who as argued that the damages from climate change are there but very small. He's an outlier really and I think his departure won't make much difference.

TONY JONES: Do you think it's been orchestrated in some way? Is that what you're suggesting?

NICHOLAS STERN: I don't know whether it's orchestrated or not. He's making his own statements and he's entitled to do that but I think he's seen as a bit of an outlier in terms of someone who thinks the damages are much smaller than the rest of us fear and this is risk management, Tony.

You have to be very, very confident that the risks are going to be very small because the science tells us the risks could be very big and it is irreversibility here, as the concentrations in the atmosphere ratchet up, the high-carbon capital and infrastructure gets locked in. Delay is very dangerous so one person saying he thinks the risks might be very small is a very marginal part of the argument because most of the science is telling us that the risks are very big and with the irreversibility that we see in this, any kind of common sense or risk analysis says we should act strongly.

TONY JONES: Well, Nicholas Stern, we're out of time. We thank you very much once again. Very frank assessment from a distance of Australia's policy and also what's going on in China. We thank you very much for joining us.

NICHOLAS STERN: Good luck to Australia. You could be a real leader on this and would benefit enormously